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Health Reform Expected to Untether Job-Locked Entrepreneurs

Posted by: John Tozzi on March 26, 2010

As the health reforms signed into law this week begin to take effect over the next four years, one consequence to watch is to what extent would-be entrepreneurs feel comfortable leaving their jobs to start businesses. If people can get affordable insurance outside of their jobs, some number of workers who mainly stay in their jobs for health benefits will leave to start small companies or work for themselves, the reasoning goes.

The job lock factor is particularly salient for those with pre-existing conditions or families where one spouse’s employer insurance covers the whole family — right now buying insurance on the open market can be prohibitively expensive or impossible for people in these situations. The new law won’t unleash a flood of entrepreneurs immediately because many changes won’t take effect for several years, but it is likely to shift how and when people decide to start new businesses in the years ahead.

The evidence for “job lock” is strong. One example: Americans’ likelihood of self-employment jumps when they turn 65 and become eligible for Medicare, according to research by Robert Fairlie of UC Santa Cruz, Kanika Kapur of University College Dublin, and Susan Gates of the RAND Corporation. “Business ownership rates increase from 24.6 percent for those just under age 65 to 28.0 percent for those just over age 65,” they write, and no similar uptick occurs at other ages between 55-75 that the researchers examined. That paper also found that job-lock was less of a barrier to entrepreneurship if a person’s spouse had employer coverage. “People who have spouses with health insurance are more likely to start businesses,” Fairlie told me.

We have to ask also whether reducing job lock will result in new firms that create jobs, or if most of the effect will be people working for themselves. The Atlantic’s Megan McArdle asks good questions on this point, and concludes:

On net, I’d suspect that this will be positive for entrepreneurship—but I don’t know that this will translate into a lot more growth. Enabling people to become self-employed is a fine thing, but it is not the same as enabling them to start transformative new businesses.

Economist Scott Shane, writing in BusinessWeek in January, similarly says that less job lock will create new firms and jobs. But that growth may be balanced by job losses resulting from reform as well, as the bill requires firms with 50 employees to provide health insurance or pay penalties. (It’s important to note that some of the job loss estimates are based on different versions of reform than the one passed into law.)

Backers of health reform certainly hope it will help reduce job lock. In her speech to the House of Representatives before voting on the law, Speaker Nancy Pelosi said:

I believe that this legislation will unleash tremendous entrepreneurial power into our economy. … Imagine an economy where people could follow their passions and their talent without having to worry that their children would not have health insurance, that if they had a child with diabetes who was bipolar or pre-existing medical condition in their family, that they would be job-locked. Under this bill, their entrepreneurial spirit will be unleashed.

There’s a flip side to this for employers to consider: Some of their most talented, ambitious, and entrepreneurial employees have one less reason to stick around once they can get health insurance elsewhere.

“That is something that was really holding a lot of people who were already feeling not a lot of loyalty to companies,” says Pamela Slim, a business coach and author of Escape from Cubicle Nation. “That is one of the most common comments I hear from people: ‘I’d love to quit my job … but it really is hard to give up the benefits.’”

By the time health reform fully takes effect in 2014, we’re likely to have a better economy and stronger job market. At that point, if people who have long nurtured entrepreneurial ambitions can get affordable health insurance outside of their employers, there will be little to stop them from quitting.

Reader Comments

Doug Carleton

March 26, 2010 3:08 PM

This is a great post. As I read it the concept of creative destruction flashed into my mind. I don't totally agree with Megan McArdle's comment that by starting a new business it may not be the same as starting a transformative business. How do any of us know? One of those startups may be. And in the process, a whole new industry may be created that will improve on an old industry, which will generally fade away. But the one may ultimately create dramatically more jobs. Creative destruction.


March 26, 2010 4:27 PM

"Job lock" has been one of the greatest factors in creating the health care crisis. Employers become the customers of the insurance companies and the end users (us!) have lost all control and knowledge of actual costs of health care.

I hope that you are right that health care reform does allow the market to create affordable options that allow us to each choose our own insurance.

Unfortunately, that won't happen immediately and, with the likelihood of heavy government involvement, we have a long road ahead.


March 26, 2010 6:22 PM

I'm sure a lot of doctors will want to escape the grind and become entrepreneurs.

Domenick Celentano

March 27, 2010 3:23 PM

Trigger Events are one of least understood areas of business, yet they have the most impact on businesses and individuals. What is articulated here in this post is the Health Care Reform initiative may be a trigger event for those frustrated individuals who stick with a job due to the certainties that company sponsored health care provides.

Affordable health care options, and this is yet to be determined, will unleash a wave of creativity and opportunistic ventures. This is good whether these ventures create employment or not. If an individual enterprise creates Value, a great Customer Experience, Affordable options, etc., it will inevitably lead to greater employment opportunities either in that business or the businesses that are vendors to that business,

It is really an academic exercise to debate whether this creates jobs or not… it creates a Derived Value by unleashing creativity in people to provide products and services heretofore not available to the consumer.

All the best!

Domenick Celentano
Silberman College of Business
Fairleigh Dickinson University

Ken Sturgis

March 28, 2010 7:38 AM

I watched Pelosi's remarks before the vote, I admit I agree with her on job locked entrepreneurs. The republican plans did the same thing except better. I agree with Dr. Phil Roe, Rep. from TN. This bill will be bad for the economy and health providers. We now have to wait and see, money will talk and B.S. will walk.


March 28, 2010 1:27 PM

You won't have people opening businesses because they can't afford the regulations. With the Health care, Green House Gas Bills it will cripple the economy. I have 55 employees and will be eliminating 6 positions to stay under the healthcare requirements.

James Coan

March 28, 2010 11:12 PM

Excellent Article. One of the most important ways in which the ongoing healthcare crisis has served to stifle innovation and job creation.

James Coan


March 29, 2010 1:30 PM

Interesting article.

Just one comment to the employers that would be looking to lay off people to stay under the 50 employee cap...

You're not looking at all of your options. As business owners, there are a lot of options available to you. Yet the first comments here indicate the knee-jerk reaction of cutting positions. It's time that business owners get back to their creative processes and quit looking for an easy solution.


March 29, 2010 2:41 PM

Pure horse hockey; a bunch of "what if's?"


March 29, 2010 3:25 PM

Job lock is most visible in the public employment sector where the will to fire is low because the dollars paid to unmotivated employees are not personal. This bill will help the public schools gain "the will" to clean house of non producing teachers. I am a public school teacher with 25 years in the classroom. We are caring human beings. We have colleagues with spouses with diabetes and children with spina bifida. You often hear "but her really needs this job". Thanks for passing health reform so we can finish school reform.


March 29, 2010 4:17 PM

If healthcare is no longer a major benefit, it will allow/force some companies to focus on other benefits......pensions, higher wages, on-site daycare, on-site gyms and locker rooms (or free health club memberships), flexible schedules, telecommuting, more paid time off, bonuses, tuition reimbursement, employee recognition, safety, commission pay structures with a higher base salary, other on-site services like cafeterias or dry-clean pick-up and delivery, better employee discounts, etc. The list can go on and on. Companies have unlimited ways and means to make employees want to stay. This should be considered an opportunity not an issue.

Don Walker

March 30, 2010 2:15 AM

This is baloney, obviously written by someone who has never started a business. I have started over 20 now, either alone or with partners. Health insurance costs are a very small consideration for someone pondering a business. On the other hand, the taxes this Administration has and will add are enough to stall or stop the majority of business expansion. Get used to high unemployment and low or no growth.

Pat Dolan

March 31, 2010 2:05 PM

I have traveled that road from Employee to Employer also. Don is correct. If health care is a major part of the decision weather to start a new business then consider the jobs to be temporary.

bob farkas

March 31, 2010 3:25 PM

I can't imagine anyone with any ability, talent, self-confidence and self-respect continuing to work for an employer (like Gary) who fires workers in order to continue in business without providing health coverage. If you're employing over 50 people and can't afford to protect them you obviously haven't got much of a business.

Hope Starkman, MD

March 31, 2010 9:09 PM

Bob Farkas

Most small businesses have uder 50 people.Most physician offices like mine
have a few employees We are hard working people.I went to school for 30 years and owed over 115 thousand dollars upong med school gradulation which Im still paying back since 1989. Small business is the core of American working people . people working to be able to take care of their children and extended families.
You comment is critical and insulting. We are not all as fortunate as you are obviously to have been able to become an employer of over 50 people.Lucky you.

Heidi Harwood

April 1, 2010 4:13 PM

I think health care reform has been a long time coming and will bring forth a renaissance for talent that has been hindered by healthcare affordability.

Besides what is everyone complaining about, this is a win-win. Making everyone have insurance will make the insurance pool so large it will cover it's own costs.I have always heard an ounce of prevention is worth a pound of cure,insurance companies will see an increase of claims in the beginning but check up costs are a lot less than expensive than hospital stays due to uncontrolled medical conditions.

The ones who are complaining about reform are the wealthy who have to pay more in taxes. This I do not understand because we,the middle and lower class, are their work force making the money for them. Wouldn't you want a healthier,happier workforce?

My argument to the rich is "Are you really paying more in taxes?" If we were to compare the amount the wealthy pay in taxes vs. their income, I am sure the percentage they pay for taxes is much less than percentage paid by the lower and middle classes.

bob farkas

April 2, 2010 11:23 PM

Hope, I think you misunderstod my comment. If you look at it again, you'll see that I was being critical of owners of businesses with MORE than 50 people who not only do not currently provide coverage for their employees, but then decide to fire people in order to be able to continue not providing coverage under the new law. I hope you'll agree there's something wrong with that picture. My comment had absolutely nothing to do with a small practice like yours.


April 3, 2010 12:40 PM


Pelosi has no connection with reality.

REAL entrepreneurs live in crappy rentals and cut corners and live carefully to avoid costs. They HATE taxes!

Wanna-be ENTs -- like MESS(iah) -- don't have guts to make such sacrifices.

Get real, BW. This is so far from reality, it is a joke.

Jerry Chautin

April 3, 2010 3:03 PM

Reply to commenter Prof. Domenick Celentano

Greetings Prof. Dom and thanks for all that you do for small business. I'm Jerry Chautin, a former entrepreneur that currently writes business columns as my second act. I agree with your comment in business week that entrepreneurs are unpredictable. Yet, you predict that the new health insurance reform will unlock employees to found their own businesses.

Entrepreneurs are risk takers with their money, relationships and even their health. So much so that the risk takers already founded their own businesses, even if they lost their health insurance. The procrastinators sitting on the fence will continue to procrastinate and find another excuse not to jump in.

So if health reform births some new businesses, I predict it will be statistically insignificant.

Again, I appreciate the passion that you bring to your advocacy for small business.

Many thanks,
Jerry Chautin


April 4, 2010 5:04 PM

Health reform is not about freeing people to make better insurance decisions. If it was we would be talking about Health Savings Accounts and other ways to detach insurance from one's job. This health reform is about government takeover of 1/6 of the US economy! Anyone with any knowledge of Medicaid and Medicare cannot possibly believe that we will save money or reduce the deficit by spending more on insuring the uninsured. All of you business people must be able to see beyond the smoke and mirrors - look at the history of Medicare and the grossly understated costs to get a glimpse of what we are headed for! This reform is unsustainable on every level.


April 14, 2010 10:56 AM

This is a pretty interesting take on "free health care". (I know, I know, more affordable health care)
However, the correlations of health care to likelihood of business ownership has many other explanations.
For instance, could it be that older people (65 and up) on Medicaid are out of work, have large pensions or savings to use for start up, and nothing else to do? Or a person with a spouse providing health care can depend on that 2nd income to keep up with household expenses? I have not seen the whole study, but lets keep in mind that correlation is not causation.
So it will be interesting to see if there is a sudden explosion of new businesses formed. It could help a lot, I am not sure. In the end, couldn't we have accomplished the same thing with-out a $2 to 3 Trillion program? And isn't it interesting that congressional leaders don't know which plan they should be using. They are "fixing" the law so they can keep their good health care plan? Lets hope that we can "unlock" their "creativity" this November so they can start a new business of their own.

John Joyce

April 15, 2010 9:14 AM

Unfortunately, health care will not be affordable under this new bill and small businesses will not hire due to the cost. The democrats have released quite a bit bunch of inaccurate data to the point of people thinking they're going to get "free health care".

This legislation does nothing but cripple small business and further slow economic recovery.


April 16, 2010 12:09 PM

It should not be an employer's responsibility to provide health insurance. If that remains, people are still locked in to their jobs. We need a single payer system.

If health care reform had been done right, it would free people from their jobs to become entrepreneurs. This health care reform package falls far short from that goal. Ditch it and try again!

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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